Correlation Between BF Investment and Fertilizers

Can any of the company-specific risk be diversified away by investing in both BF Investment and Fertilizers at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BF Investment and Fertilizers into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BF Investment Limited and Fertilizers and Chemicals, you can compare the effects of market volatilities on BF Investment and Fertilizers and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BF Investment with a short position of Fertilizers. Check out your portfolio center. Please also check ongoing floating volatility patterns of BF Investment and Fertilizers.

Diversification Opportunities for BF Investment and Fertilizers

0.11

Correlation Coefficient

BF Investment  Fertilizers

Average diversification

The 3 months correlation between BFINVEST and Fertilizers is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding BF Investment Limited and Fertilizers and Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fertilizers and Chemicals and BF Investment is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BF Investment Limited are associated (or correlated) with Fertilizers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fertilizers and Chemicals has no effect on the direction of BF Investment i.e., BF Investment and Fertilizers go up and down completely randomly.

Pair Corralation between BF Investment and Fertilizers

Assuming the 90 days trading horizon BF Investment Limited is expected to under-perform the Fertilizers. But the stock apears to be less risky and, when comparing its historical volatility, BF Investment Limited is 1.02 times less risky than Fertilizers. The stock trades about -0.14 of its potential returns per unit of risk. The Fertilizers and Chemicals is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  101,265  in Fertilizers and Chemicals on October 4, 2024 and sell it today you would lose (3,175) from holding Fertilizers and Chemicals or give up 3.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BF Investment Limited  vs.  Fertilizers and Chemicals

BF Investment Limited

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BF Investment Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, BF Investment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Fertilizers and Chemicals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fertilizers and Chemicals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Fertilizers may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BF Investment and Fertilizers

The main advantage of trading using opposite BF Investment and Fertilizers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BF Investment position performs unexpectedly, Fertilizers can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Fertilizers will offset losses from the drop in Fertilizers' long position.

The idea behind BF Investment Limited and Fertilizers and Chemicals pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..